Three banks from Europe under SEBI scanner over round-tripping in Indian market

Two of these three banks are from Switzerland and one is from the UK. SEBI suspects that some portfolio managers at these banks could have helped their Indian clients to route their money back into India in disguise of foreign funds

Market regulator Securities and Exchange Board of India (SEBI) is probing at least three large European banks for dealings with Indian companies and individuals in alleged round tripping of funds by using certain multi-layered transactions in violation of the norms.


According to reports, two of these three banks are from Switzerland and one is from the UK, and they might not be involved directly and it could be the case that their employees were dealing with the clients directly without keeping the banks in the loop.

SEBI suspects that some portfolio managers at these banks, which have significant presence in Indian financial markets, could have helped their Indian clients to route their money back into India in disguise of foreign funds via investment vehicles across various jurisdictions.


The regulator fears that some promoters might also have been involved in such practices to boost share prices of their companies by showing a strong interest from foreign institutional investor (FII).


SEBI is coordinating with other regulators and agencies in India and abroad as part of investigations into this case, where some well-known companies and industrialists are also suspected to be involved.


Still, the banks could face action on the negligence ground if allegations of wrongdoing come true, a senior official said, while refusing to divulge the identity of the banks and their Indian clients.


Among others, SEBI is looking into the possible use of protected cell companies from places like Mauritius, British Virgin Islands, Cayman Islands and Seychelles for alleged round tripping of funds back into the capital market in the form of foreign institutional investors and overseas venture capital money. (SEBI fears round-tripping through overseas cell companies)


In 2010, SEBI had barred protected cell companies (PCCs) to invest in Indian markets through the FII route after it came across instances where certain Indians had used these entities to route their money back into markets as FII funds.


However, the regulator fears that funds structured as PCCs, which are legal entities in many jurisdictions, might be looking at a re-entry into Indian markets through routes like Foreign Venture Capital Funds and other avenues for the purpose of round tripping of funds.


PCCs are specially designed entities that might comprise various cells, having funds of various investors, in such a manner that there is legal segregation and protection of assets and liabilities for each cell.


In addition, the insolvency of one cell does not affect the business of the entire PCC or that of the other cells.


Besides tax-related benefits for being considered as a single entity despite having various cells, foreign banks have also been found in the past of hard selling these schemes to their wealthy clients for reasons like protection of identity.


Earlier in March, The Reserve Bank of India (RBI) has said that it would take further action against HSBC, based on the observations made during its Annual Financial Inspection (AFI) for 2012. The lender, is under the RBI scanner for alleged violations of money-laundering and know your customer (KYC) norms.

Last year, the RBI started scrutinising anti-money laundering (AML) and KYC systems of Standard Chartered and HSBC. Besides, the Financial Intelligence Unit-India (FIU-IND) had also initiated a fact-finding exercise related to HSBC’s operations in India and its compliance to AML and counter financing of terrorism (CFT) regime.

The RBI was also seeking details from British financial sector regulator Financial Services Authority (FSA) about the two UK-based global banking giants, which have a significant presence in India and whose outsourcing of key oversight jobs to India had come under the US scanner in separate probes related to issues like money laundering and terror financing.

Last year, the Income-Tax (I-T) department probing the secret list of account holders in the Geneva branch of HSBC Bank, had approached Swiss revenue authorities for banking data of certain individuals after investigations showed some of them reportedly had other accounts under fictitious names.

India had obtained data of over 700 HSBC accounts from the French government channels last year.

Earlier, in July 2012, the US Senate's Permanent Sub-committee on Investigations said HSBC was found to be doing business with Al Rajhi Bank, whose key founder was an early financial benefactor of al Qaeda, and also have provided US dollars and services to some banks in Saudi Arabia and Bangladesh despite their links to terrorist financing.

The bank had also been accused of indulging in various questionable transactions with entities from countries like Mexico, Iran, North Korea, Saudi Arabia, Bangladesh, Syria, Cuba, Sudan, Burma, Cayman Islands, Japan and Russia.

After the report, HSBC paid a fine of $28 million to Mexican authorities for non-compliance with money laundering controls. The money-laundering issue stemmed from HSBC’s acquisition of Mexican company Grupo Financiero Bital in 2002.



Dayananda Kamath k

4 years ago

is sebi serious about these issues or is it a ploy to give its masters a handle to rake in moolah during election time. it is being given vide powers at this juncture when they are not using the power already vested in them to do the job for which they are created.


4 years ago

These games will go on unless, corruption is brought to an end. I see arguments in favour of round tripping on the tip of the tongues of politicians, bureaucrats, economists and bankers already. Draconian accountability and confiscation of global assets traced to transgressors is the only way forward. This is impossible unless the educated but honest take the levers of power or the other alternative of violent revlution overtakes events.

India trade deficit in July better than expected, says Nomura

According to Nomura, the sharp pickup in exports suggests that global demand is recovering. Even though external demand has improved, weak domestic demand has kept a lid on India's imports

After two months of fall, India’s trade deficit remained flat at $12.3 billion in July from $12.2 billion in June due to better-than-expected export growth. During July, goods exports shot up 11.64% to $25.83 billion buoyed by a growth in shipments of pharmaceuticals, textiles, chemicals and heavy machinery.


In a note, Nomura Financial Advisory and Securities (India) Pvt Ltd, said, "The sharp pickup in exports suggests that global demand is recovering. Even though external demand has improved, weak domestic demand has kept a lid on imports. Imports contracted 6.2% in July compared with a decline of 0.4% in June."


A sharp decline in gold and silver imports to $2.97 billion in July 2013 compared to $4.47 billion of imports in the comparable month last year, resulted in an overall 6.2% fall in overall exports to $38.10 billion.


Trade deficit narrowed to $12.26 billion during the month compared to the previous months bringing some relief to policy makers grappling to keep the current account deficit in check.


According to commerce secretary, SR Rao, a depreciating rupee had helped exporters as their realisation had increased but a stable foreign exchange helped in long-term contracts.


Oil imports during July 2013 was 8% lower at $13.816 billion, while non-oil imports at $25.39 billion were 5.26% lower than the same month last year.


In the April-July period, exports rose 1.72% to $98.29 billion. Imports during the period posted a growth of 2.82% to $160.73 billion. Trade deficit during April July 2012-13 was $62.44 billion compared to $59.69 billion last year.


Rao said the incentives announced recently to boost exports would show results in the coming months.


Exports in 2012-13 fell 1.6% to $300.6 billion as slowdown in the global economy shrunk demand while imports increased by a marginal 0.44% to $491.48 billion from $489.31 billion creating a trade deficit of $190.91 billion.


"With domestic demand weak and global demand improving, the trade deficit should improve this fiscal year. We expect the current account deficit to moderate to 4.0% of GDP in FY14 from 4.8% in FY13 due to lower gold imports and lower non-oil and non-gold imports due to subdued domestic demand. However, we expect net capital inflows to also slow due to worsening domestic growth prospects, which will result in a balance of payments deficit," said Nomura.


Auto industry’s breakdown continues; July car sales fall 7%

While vehicle sales across the segments are down, scooter and vans reported higher numbers due to robust demand during July

Auto sales continued to decline during July as well, with number of vehicles sold during the month declining 2.08% to 14.15 lakh units, says data released by the Society of Indian Automobile Manufacturers (SIAM). While vehicle sales across the segments are down, scooter and vans reported higher sales on robust demand.


According to SIAM, domestic passenger car sales in July declined 7.4% to 1.31 lakh units continuing its downward journey. During April-July 2013, passenger vehicle (PV) sales, including passenger cars, utility vehicles (UVs) and vans declined 7.5% to 1.86 lakh units from 2.03 lakh units, same period last year. While sales of cars and UVs are down, vans recorded 8.86% higher sales to 18,066 units during the month.


During July, motorcycle sales too declined 1.52% to 8.09 lakh units from 8.21 lakh while total two-wheeler sales declined marginally to 11.31 lakh units from 11.32 lakh units same period a year ago. Among two-wheeler category, scooter/scooterette continued upward journey with 9.8% higher sales to 2.71 lakh units from 2.47 lakh units in July 2012.



Total sales of commercial vehicles declined by 14.9% to 55,301 units from 65,008 units in the year-ago period, SIAM said. Among the category, light commercial vehicles (LCVs) and goods carriers recorded biggest fall of 18.7% and 18.3% to 37,932 and 33,709 units, respectively.


Total sales of vehicles across categories registered a decline of 2.08% to 14.15 lakh units as against 14.45 lakh units in the same month of 2012, SIAM added.


As per the data, medium and heavy commercial vehicle (M&HCV) sales witnessed sharp fall during April-July 2013. During the four months, M&HCV sales fell 16.65% to 74,556 units from 89,449 units same period last year.


On the contrary, two-wheelers and UVs are least affected by the downfall. During April-July, two-wheeler sales declined 0.64% to 46.23 lakh units from 46.52 lakh units while UV sales declined 1.03% to 1.60 units from 1.62 lakh units, same period a year ago, SIAM said.


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